Going Under: More Business Bankruptcies

In another dismal economic sign, overall they're up 42 percent in the first half, with Chapter 7 liquidations sharply outpacing Chapter 11 reorgani...
Stephen TaubAugust 27, 2008

U.S. business bankruptcy filings surged more than 42 percent in the first six months — to 18,456, from 12,985 a year ago — according to data released by the Administrative Office of the U.S. Courts.

Chapter 7 business liquidations jumped 54.7 percent, to 13,002, while Chapter 11 activity rose 27.9 percent, to 3,470. Chapter 7 of the Bankruptcy Code, available to both individual and business debtors, aims to fairly distribute the nonexempt property of a debtor to creditors, with any unsecured debts that aren’t reaffirmed being discharged, and providing a fresh financial start. Under Chapter 11, the purpose is to rehabilitate a business as a going concern, or to reorganize the debtor’s finances through a court-approved reorganization plan.

Business surged 45.3 percent, to 9,743 in the second quarter, up 11.8 percent from the first quarter. Interestingly in such a period of sharply higher filings, however, Chapter 11 business filings decreased 8.5 percent in the second quarter over the first.

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The chapter breakdown of business filings for the June quarter was 7,043 Chapter 7s; 1,658 Chapter 11s; 85 Chapter 12s, and 940 Chapter 13s. Chapter 12 gives special debt relief to a family farmer with regular income from farming, while Chapter 13 aids individuals with regular income whose debts do not exceed specific amounts. Chapter 13 typically is used to budget some of the debtor’s future earnings under a plan paying unsecured creditors. An individual, even if self-employed or operating an unincorporated business, if the debts fall under a certain limit.

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